The pan-European FTSEurofirst 300 ended the day around 1 percent lower, paring some losses, with Italy's FTSE MIB and Spain's IBEX posting losses of over 1.9 percent and 1.3 percent respectively.

Portugal's PSI ended the day around 4.1 percent lower after after heavy losses on Wednesday, driven by concerns over the governance and health of one of Portugal's leading banks. The trading of shares in Banco Espirito Santo were suspended on Thursday afternoon, according to Dow Jones, after falling over 17 percent.

Banking stocks in general tipped lower, with concerns at Portugal weighing down the region's other lenders. Shares of Banco Popolare fell 2.8 percent, and Unicredit lost 2.5 percent.

Commerzbank stock, meanwhile, also slipped. Reuters reported the German lender could pat $600 million to $800 million to settle a probe into its dealings with countries under U.S. economic sanctions. Shares closed down around 2 percent lower.

U.S. stocks follow

The concerns out of Europe dragged U.S. stocks sharply lower, but they recouped much of the losses that came in the first hour of trading

Fresh data released in the euro zone did little to lighten the mood. Italy's industrial output showed an unexpected monthly drop of 1.2 percent in May. Meanwhile, new figures showed French industrial production plunged in May and inflation rose by just 0.6 percent, its lowest level since November 2009.

In other stocks news, AB Foods said its full-year adjusted earnings per share were now expected to be ahead of those reported for last year. Group revenue was up 3 percent in its third quarter at constant exchange rates. Shares fell 1.4 percent

Dutch multinational company Fugro was the worst performer on European benchmarks, tanking 18 percent, after it issued a disappointing second-quarter trading report.

Shares in Burberry bucked the downward trend to close over 3 percent higher. The company was the top gainer on the FTSE after the group reported a 12 percent rise in first-quarter comparable sales. It said it remained confident of delivering sustainable, profitable growth into the future. The company holds its annual shareholder meeting on Friday.